Written by

Detroit Free Press Business Writer

The Police and Fire Retirement System is denouncing the findings of an actuarial report that was commissioned by the City of Detroit to examine the funding level of the city’s pension funds.

The pension board called the findings an incomplete valuation based on assumptions provided by emergency manager Kevyn Orr to “serve his public relations and litigation needs,” said retirement system spokesman Bruce Babiarz.

The city’s pension funds are controlled by independent boards, but if the pension systems don’t generate enough income, the city has to pay the difference, and it does not have the money to do so.

The Milliman reports, written by accountants Glenn Bowen and Katherine Warren, estimate the city’s unfunded pension liabilities range from about $3 billion this year to as high as $3.7 billion in 2016. They recommend the pension funds factor in more realistic rates of return on their investments — in the 6.5% range as opposed to the current assumption of about 8%. Orr’s office favors an annual return of between 6.25% and 7%, said spokesman Bill Nowling.

The system takes issue with the city’s use of the firm and its conclusions, which tend to support Orr’s stance that the pension funds are woefully underfunded. Settling on a single set of numbers is crucial to efforts to restructure the city’s debt.

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“There is nothing independent about Milliman’s work,” said Babiarz. “It has been paid some $350,000 to run various analyses based on the direction of the city and EM. These so-called studies represent but two of numerous ‘bought-and-paid-for’ scenarios the EM hired Milliman to run,” he said.

The National Association of State Retirement Administrators found many public retirement systems have projected an average rate of return of 7.7% and have exceeded that over the last 25 years.

Milliman also provides a recommended scenario that amortizes the debt over 15 years instead of 29, freezes the plan and eliminates cost-of-living allowances to reduce city contributions.

The financial and legal teams of the retirement system have gone over the preliminary report dated June 4 and acquired by the Free Press under the Freedom of Information Act.

The teams described the Milliman figures as “output from a simplified 10-year projection model that is significantly less robust than a projection based on a full valuation as has been done by the actuaries for the Retirement System of the City of Detroit,” Babiarz said.

Orr’s assertion that the pension funds are underfunded by $3.5 billion is a major reason for pushing the City of Detroit into bankruptcy. The pension systems say the funds are underfunded at about $644 million.

Past Milliman audits have been based on the official valuations by actuary Gabriel Roeder Smith, which concluded the pension funds are better funded. Figures from Gabriel Roeder Smith show the uniformed system is funded at 96% and the General Retirement System is funded at 77%.

The reports are unlikely to resolve the bitter dispute with unions and retirees over whether the funds can afford to pay for future obligations. But the city said it needs a starting point for continued negotiations, knowing a bankruptcy judge could make the final call on the future level of retiree payouts, Nowling said.

Representatives from the pension boards and unions have been invited to meet Monday with city and Milliman representatives to go over a more comprehensive Milliman report containing original research that has yet to be released.

Nowling said on Friday he had not seen the more extensive report, “but I am not expecting the figures to vary a lot (from the June 4 report).”

The pension systems see Monday’s meeting as the first opportunity for genuine talks on the contentious subject.